It’s not a tech-specific acronym like a CRM, AI, or the IoT, but it’s the one small and medium-sized businesses care about most when they’re choosing digital tools: ROI.
Even when the economy is at its strongest, companies need to justify ROI – otherwise known as return on investment – for every technology purchase they make. Calculating it may vary from one company to another, but the essential formula remains the same. IT should always give back more than you spend.
That “more” could be time savings in the case of some technologies. Others forms of automation may yield efficiencies that lead to greater output per employee, or stronger employee engagement. There are also a number of IT purchases that can lead directly to cost savings, allowing money to be reallocated elsewhere.
ROI is just one aspect of cost optimization, however. Even if you’re getting a lot back from your existing tech stack, you may need to take more steps to ensure operational expenses adjust to changing conditions. Some factors that lead to cost optimization include a slowdown in customer demand, a rise in price for critical supplies, or a need to divert financial resources toward business expansion.
IT costs can sometimes get off track because of a failure to communicate between the stakeholders who matter. Those in the IT department may have deep expertise in the latest tools, for instance, but those at the business function level may have a better sense of what will matter in terms of operational performance or the customer experience.
There are two risks to IT cost optimization, even when it’s clear that it has to be done. You never want to cut back in such a way that your organization will be left behind when competitors take advantage of emerging innovations. You also don’t want to cut back in a way that leaves your business more exposed to the ever-growing range of cybersecurity threats such as malware or DDoS attacks.
Fortunately, there are plenty of ways to strike the right balance between getting IT costs in line while also keeping your data protected and your business open to harness the next big thing:
1 . Review alignment between business and IT KPIs
Hopefully when you made some initial IT investments you had some goals that were tied directly into things that matter to the company as a whole. IT-specific metrics like uptime are important, but they don’t matter much if technology isn’t serving your business.
Review your tech stack and how it’s contributing to areas such as customer acquisition cost, churn, Net Promoter Score, or even productivity metrics. If it’s not moving the needle as expected, it might be time to halt your subscription (if it’s a software-as-a-service or SaaS tool), or end an annual contract. You could always invest in something better – and possibly less costly – later on.
2. Assess your product tier decisions
Many SaaS tools are priced with a few different options. At the bottom may be a “basic” tier with essential functionality. This may be at a low cost, or even free. Next up is often a mid-tier, sometimes called “Business” or “Pro.” This will have a more substantial cost but has more features. There are many SaaS products with a third, premium tier, which allows for more users and may have still more features.
Companies are sometimes convinced they should take the business or pro tier first, and might have moved to the premium tier before it was really necessary. Take an audit of the applications being used across each department and see if there are any apps where the basic version will suffice. Changing back to an upper tier should be easy in most cases.
3. Complete your journey to the cloud
There are a surprising number of companies that continue to run on-premise software that isn’t doing them any favours from a financial perspective. These applications can be expensive to replace, difficult to keep updated, and can expose businesses to hackers.
Moving more of your tech stack, on the other hand, means you’ll always be current with the latest version of an application, which bolsters security and lets you take advantage of the latest innovations. Even if there’s an upfront switching cost, it may be worth it in the long run.
4. Move from a buying model to a DIY approach
The next app that transforms the way you do business may not have to come from a third-party developer. In fact, it may not come from a developer at all.
The rise of low-code or even no-code platforms allows people with no programming background to create highly sophisticated tools. This includes people who work in hands-on roles within marketing, sales, and customer service teams. You can wind up with apps that are a better fit for your business but are more cost-effective to create.
5. Consolidate and simplify by embracing a single, trusted platform
Tech stacks can become complicated because there are just so many applications being used. This is as trusted in SMBs as it is in large enterprises. The same solution works for companies at either end of the spectrum: take a platform approach instead.
Businesses that use Salesforce’s Customer 360, for example, have seen 25% lower IT costs. They also get a unified view of customer data that helps bring their whole team together.
IT cost optimization shouldn’t be treated as a short-term project. Think about how you can develop an ongoing process that brings IT and line-of-business team members together to regularly evaluate what’s being spent, and whether something should change. It will leave your business in better financial shape, more secure, and more future-ready than ever before.
